July 26, 2000

Setting the record straight on tobacco taxes

Recently, Liberal MP Bob Speller has written letters to editors of area newspapers regarding the issue of tobacco taxes in the wake of the federal government's plan to raise levies on cigarettes. In attempting to defend his record, Mr. Speller has misled many local tobacco farmers and residents about federal-provincial tobacco taxation.

One thing must be made clear: the federal government does not require Ontario's permission to raise or lower tobacco taxes, as Mr. Speller suggests. Any decision to change federal tobacco tax rests unilaterally with the federal government.

Ontario's tax on tobacco is linked directly to the federal tax rate. It was established this way in the 1996 Ontario Budget to reduce legislative duplication and to protect provincial tax room.   This formula works out to a set percentage of the price of a pack of cigarettes, plus any adjustment in federal tax rates. Thus, any adjustment in federal tobacco taxes is automatically matched by an equal change in Ontario's tax rate.

To suggest I have voted to increase tobacco taxes, as Mr. Speller does, is nonsense. After 1996, a vote in the Ontario Legislature has not been needed to change Ontario's tobacco tax - it changes automatically when federal changes occur.

Unfortunately, Mr. Speller missed the point of comments I made concerning tobacco tax increases when writing to defend himself. When asked about the federal government's proposal to hike tobacco taxes - reported at the time as anywhere from $10 to $20 a carton - I said these hikes would be bad for farmers and the area. Past tobacco tax hikes have led to increased smuggling, contraband tobacco, and lower prices for Ontario's farmers.

The facts of this proposed hike are not at issue. This spring, Federal Finance Minister Paul Martin wrote to his provincial counterparts seeking participation in a review of cigarette taxes.   A portion of Mr. Martin's letter, as reported in the May 11, 2000 National Post , read as follows: "I believe that in the interest of the health of all Canadians we must consider what steps can be taken to re-establish tobacco taxes to their pre-1994 levels as soon as possible."   For Ontario, that would mean an increase of $12 - $15 per carton. Ontario Finance Minister Ernie Eves wrote back that Ontario was not prepared to actively participate with the task force, but would retain an observer status.

At the time, I also suggested federal health Minister Allan Rock was pushing for higher tobacco taxes. This, again, is not at issue. In December of 1998 Mr. Rock testified before a Senate committee and strongly advocated higher tobacco taxes. As reported by the Canadian Press in numerous newspapers across the country, Rock, when speaking of U.S. cigarette tax hikes at the time, said, "We are going to do everything we can to take full advantage of that by increasing Canadians taxes as soon as we can." Mr. Rock has continued to push for increased cigarette taxes and was especially vocal at the time of Mr. Martin's letter to the provinces.

When these huge cigarette taxes were suggested, I opposed them.   The Ontario government is known for tax cuts, not increases. With a tough year including adverse weather, increasing world tobacco supply, marketing challenges, active anti-tobacco zealots and blue mould, I believe farmers do not need one more thing - crippling federal tax increases - to worry about.